Risk management contracts and method and apparatus for trading same

Abstract

Provided herein are various exemplary methods and apparatus for implementation of futures securities custom tailored to specific clienteles; one or more variable pay-out futures contracts as devices for hedging; hedging contracts having variable pay-outs; variable payout hedging contracts having limited exposure; freezing assets of an originator of an order to buy or sell a variable pay-out contract sufficient to cover a maximum exposure of the contract; determining whether an originator of an order to buy or sell a variable pay-out contract has assets sufficient to cover the contract at the time of placing the order; determining whether an originator of an order to buy or sell a variable pay-out contract has assets sufficient to cover the contract immediately before fulfilling the order and charging a penalty to an originator of an order to buy or sell a variable pay-out contract who does not have assets sufficient to cover the contract.

The invention claimed is: 
     
       1. A computer-implemented method for trading a variable pay-out hedging instrument, the method comprising a computer processor executing the steps of:
 receiving by a computer a quoted point of an underlying market; 
 determining by the computer an upper range value, the upper range value higher than the quoted point; 
 determining by the computer a lower range value, the lower range value lower than the quoted point; 
 forming by the computer a range comprising the lower range value and the upper range value around the quoted point; 
 offering by the computer the variable pay-out hedging instrument based on the range, the instrument offered at the quoted point within the range; wherein the range is one of a multiplicity of ranges and wherein at least two of the multiplicity of ranges are listed; and wherein at least two of the multiplicity of ranges have different upper range values, at least two of the multiplicity of ranges have different lower range values, and at least two of the multiplicity of ranges range different underlying markets; 
 a hardware based random number generator randomly prioritizing two or more orders received simultaneously and directing a prioritized order to a validator, the validator freezing an asset corresponding to the prioritized order and directing the prioritized order to a switch; and the switch communicatively coupled to the validator, the switch receiving the prioritized order from the validator, and directing the prioritized order to an order matcher. 
 
     
     
       2. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , the method further comprising:
 trading the variable pay-out hedging instrument until a present value equals or falls outside of the lower range value or the upper range value. 
 
     
     
       3. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 2 , wherein the variable pay-out hedging instrument expires. 
     
     
       4. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 2 , the method further comprising:
 resuming the trading of the variable pay-out hedging instrument when a present value falls within the lower range value and the upper range value. 
 
     
     
       5. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 3 , wherein the expiration of the variable pay-out hedging instrument is accelerated. 
     
     
       6. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , the method further comprising:
 trading the variable pay-out hedging instrument until a settlement date. 
 
     
     
       7. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , wherein the settlement date is seven days or less after an opening date. 
     
     
       8. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , the method further comprising:
 halting the range after halting the variable pay-out hedging instrument. 
 
     
     
       9. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 8 , the method further comprising:
 resuming the range after halting the variable pay-out hedging instrument when the quoted point of the underlying market moves back within the lower range value and the upper range value. 
 
     
     
       10. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , wherein a delta of the variable pay-out hedging instrument is always  1  on an expiry day. 
     
     
       11. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , wherein an opening of the variable pay-out hedging instrument occurs between two exchange members. 
     
     
       12. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , wherein an opening of the variable pay-out hedging instrument includes matching offers of exchange members. 
     
     
       13. The computer-implemented method for trading the variable pay-out hedging instrument of  claim 1 , wherein an opening of the variable pay-out hedging instrument occurs between an exchange member and an exchange or its associated clearing member.